Leach, G. (2014) “Forget the dodgy numbers: Leaving the EU makes economic sense“, City A.M. free daily business newspaper, 28 May.
UKIP’S recent electoral triumph has reignited debate about the cost of Britain’s place in the EU. But what do we know about the economics of our membership? Let’s start from the beginning: we’ll find that Brexit has long made economic sense.
Prior to joining the then Common Market in 1973, two government white papers and three academic studies predicted that the net economic costs of Britain’s accession would be negative, owing to the combined impact of direct transfers to Brussels and the Common Agricultural Policy (CAP) driving up food prices. During the 1980s, the incoming tide of legislation from Brussels was turning into a tidal wave, but nobody quantified the economic impact until the Institute of Economic Affairs (IEA) published a report in 1996.
Its key conclusion was that the effect of exit on the UK economy would be small (with a net impact of +/- 1 per cent of GDP per annum). The IEA showed there would be a sure gain from leaving the CAP, a loss from the imposition of tariffs on UK exports, a partial offset from reduced distortions from EU tariffs on imports into the UK, and a possible loss from a reduction in foreign direct investment (FDI). My interpretation at the time was that, if you argued the EU wouldn’t shoot itself in the foot – that we would retain open markets and a free trade agreement – exit would almost certainly be positive.
Then, in 2000, I wrote a report for the Institute of Directors, which estimated the net cost of membership at around 1.75 per cent of GDP per annum. So the numbers were edging up, driven by the regulatory burden from the EU and one-size-fits-all Single Market harmonisation, with EU regulations applied to the entire economy. A Civitas report in 2004 raised the bar higher, with an estimate of the net cost of membership at around 4 per cent of GDP per annum.
Relevant posts:
- Möller, Α. & Oliver, Τ. (2014) “Greater attention should be paid to the consequences of a ‘Brexit’ for the EU and other states around the world, not just the UK“, LSE EUROPP Blog, 01 September.
- Tzogopoulos, G. (2014) “Britain Outside Europe? The Greek View, Athens will only have to lose with Brexit“, IP Journal, German Council on Foreign Relations, 25 June.
- Sinn, Hans-Werner, (2013) “Should Germany Exit the Euro?“, Project Syndicate, 23 April.